According to a Monday report (Google Translate) by Danish public broadcaster DR, the Danish Ministry of Taxation is currently in negotiations with Microsoft and the Internal Revenue Service (the tax authority in the United States). The Ministry hopes to gain back the money that the Danish government claims it’s owed.

Representatives from both Microsoft and the Internal Revenue Service declined to comment on this story. The Danish Ministry of Taxation did not respond immediately to a request for comment.

“If [the tax authority] were to get their hands on the money, that would amount to financing a new super hospital, the next Silkeborg Motorway between Herning and Aarhus, or 15,000 teachers in primary schools.” DR reported.

As we’ve reported before, this means that foreign profits can be attributed to the offshore subsidiary rather than to the actual corporate headquarters. While subsidiaries are supposed to pay “arm’s length” prices, there’s an incentive to set those prices as low as possible as a way to shift profits overseas, where tax rates are lower.

Companies can arrange for secret deals with the Internal Revenue Service that dictate the terms of such transfer pricing under what’s called an “advanced pricing agreement.” Google got its approval in 2006.

It's likely Microsoft could have used a legal technique known as a "Double Irish." Many other large companies (including Amazon, Apple, Google and others) use this tactic to create complicated shell companies and tax loopholes that allow them to minimize their tax burden in the United States, Ireland, the Netherlands, and elsewhere.

The beginnings of a crackdown?

“It seems like the biggest problem here will be the one that tends to plague these transfer pricing problems: finding a comparable transaction or otherwise figuring out an objective price for the transaction,” Samuel Brunson, a professor of tax law at Loyola University Chicago, told Ars.

“If the software is sui generis—and I suspect Microsoft would argue that it is—what goes into the price is a whole lot harder to figure out. The survey data I've seen says that corporate tax directors generally consider transfer pricing one of the most pressing international tax concerns they have, and it doesn't surprise me that governments are looking to it to increase their revenues, too.”

Promoted Comments

Microsoft and the other hardware and software companies ought to start charging governments for the increase in productivity derived from computers.

After all, a more productive labor force earns higher incomes and pays more taxes to said governments. It's only fair that software companies participate from the increased efficiencies. Sounds ridiculous? That's exactly what governments are doing.

That does sound ridiculous but not in the way I think you meant it. Will car companies charge governments for the increased productivity of a workforce able to work further than they can walk in the morning? Or lightbulb manufacturers for increased productivity of a workforce able to continue after sundown? That is a pretty ill-reasoned argument to say the least.

Also, let's stop with this Microsoft ARE computing. They sell an OS, an Office suite and some other products. They are not COMPUTERS just as all smartphones are not iPhones, all networking is not Cisco, or all consoles are not Nintendo, etc.

They sell software and products. They recieve money. They pay taxes on that money. They are not special. I'm not sure how much more basic it can get. They are not charity, they are a business and deserve to be treated as such. And that includes taxation by the relevant authorities where they do business, not just backroom deals with the US government.

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After decades of widening the wealth gap there is no more money to be had from turning the knobs on the hoi polloi. Gouge the plebeians any more and they'll rebel. You can no longer pull unsustainable amounts out of the aquifer; you must live within your means.

For politicians, this is a massive problem. The infrastructure of modern government has been built up for decades to take as much as possible from "the many" and redirect it to the elite few that ensure said politicians achieve their desires. If the aquifer can no longer be tapped to provide what the chosen few desire, then the only possible source is to go after the stores and caches held by others.

The transfer of money in the 21st century will no longer be from the poor to the rich. The poor simply have no more to give. The transfer of money will now be from one group of the rich (the disfavoured) to another (the favoured.) Restructuring taxes to close loopholes or attempting to pursue those perceived to have used loopholes is only the beginning. If/when these methods become effective, you will see a dramatic rise in grants and other monies flowing from this newly discovered source of governmental wealth to the same beneficiaries as before.

There will be no new hospitals, no motorways or teachers. There will be guns, bombs, financial misdealings, perv scanners and massive squandered SAP implementations. Anything to keep the money flowing from somewhere - anywhere - into the hands of those who propped the politicians up.

Of course, where the metaphorical water comes from to fill the private caches that the government is busy tapping in order to funnel it to their backers is not to be discussed. Onward, then. And blindly too, if you can manage it...

Microsoft and the other hardware and software companies ought to start charging governments for the increase in productivity derived from computers.

After all, a more productive labor force earns higher incomes and pays more taxes to said governments. It's only fair that software companies participate from the increased efficiencies. Sounds ridiculous? That's exactly what governments are doing.

That does sound ridiculous but not in the way I think you meant it. Will car companies charge governments for the increased productivity of a workforce able to work further than they can walk in the morning? Or lightbulb manufacturers for increased productivity of a workforce able to continue after sundown? That is a pretty ill-reasoned argument to say the least.

Also, let's stop with this Microsoft ARE computing. They sell an OS, an Office suite and some other products. They are not COMPUTERS just as all smartphones are not iPhones, all networking is not Cisco, or all consoles are not Nintendo, etc.

They sell software and products. They recieve money. They pay taxes on that money. They are not special. I'm not sure how much more basic it can get. They are not charity, they are a business and deserve to be treated as such. And that includes taxation by the relevant authorities where they do business, not just backroom deals with the US government.

Microsoft and the other hardware and software companies ought to start charging governments for the increase in productivity derived from computers.

After all, a more productive labor force earns higher incomes and pays more taxes to said governments. It's only fair that software companies participate from the increased efficiencies. Sounds ridiculous? That's exactly what governments are doing.

You say that as if incomes haven't been stagnant for decades for the vast majority of workers, compared to the rate of inflation.

The thing is that we all know that individuals and corporations will do anything they can to limit their tax burden. We also know that governments will never be satisfied with the amount of tax revenue they raise. All sides are greedy. It is hard to fault anyone, once you look in the mirror.

The thing is that we all know that individuals and corporations will do anything they can to limit their tax burden. We also know that governments will never be satisfied with the amount of tax revenue they raise. All sides are greedy. It is hard to fault anyone, once you look in the mirror.

That being said, MS really is an evil greedy aren't they?

Well, with the modern system of off-shore havens and global capital movement, governments are pretty much bringing knives to a gun fight.

Edit: Well, with regards to multi-nationals at least. Historically the propotionate majority of the tax burden has always fallen on individuals, even though corporate taxation is a larger share.

The real problem here is that almost no country punishes erroneous transfer pricing (except in extreme cases) because it is very hard to prove the error is willful.

Because of that, large corporations have no incentive to come up with the right number. Quite the opposite in fact. They will always try to get away with a lower number because the only risk is a slap on the wrist and being forced to pay what they should have paid to begin with.

I am not advocating the practice - but who can blame the for trying? In fact most boards and/or investors would probably fire management if they DIDN'T try to get away with this ...

Wonder why so many down votes? I don't think much of what the OP said can be refuted, as its pretty much what's happening right here and now.

Because it's quite a cynical view. Firstly, we could debate whether that really is "what's happening right here and now." And secondly, that it is utterly willed by politician, and that they are inherently corrupt.

Thirdly, because his statement denies all facts. Denmark isn't a dystopian society in a state of laissez-fare capitalism where the state is merely an apparatus of the elite to rule over the masses. From my impression of the country, it seems to be a functional democracy and an effective welfare-state, moreso then the whole lot of us. The Danish government seems to be very involved in developing their infrastructure (unlike other states.)

I am not advocating the practice - but who can blame the for trying? In fact most boards and/or investors would probably fire management if they DIDN'T try to get away with this ...

I remember reading on Tvtropes once that companies are legally required to maximize their profits (if true it makes a certain amount of sense) which means that they have to down value this as much as possible

Thirdly, because his statement denies all facts. Denmark isn't a dystopian society in a state of laissez-fare capitalism where the state is merely an apparatus of the elite to rule over the masses. From my impression of the country, it seems to be a functional democracy and an effective welfare-state, moreso then the whole lot of us. The Danish government seems to be very involved in developing their infrastructure (unlike other states.)

I am not advocating the practice - but who can blame the for trying? In fact most boards and/or investors would probably fire management if they DIDN'T try to get away with this ...

I remember reading on Tvtropes once that companies are legally required to maximize their profits (if true it makes a certain amount of sense) which means that they have to down value this as much as possible

Wouldn't profits be further maximized if the pay increases OFTEN given to management were changed to match the kind of 'increases' given to labor? In the years when I actually got 2%, I doubt management did that poorly...

Because it's quite a cynical view. Firstly, we could debate whether that really is "what's happening right here and now." And secondly, that it is utterly willed by politician, and that they are inherently corrupt.

Thirdly, because his statement denies all facts. Denmark isn't a dystopian society in a state of laissez-fare capitalism where the state is merely an apparatus of the elite to rule over the masses. From my impression of the country, it seems to be a functional democracy and an effective welfare-state, moreso then the whole lot of us. The Danish government seems to be very involved in developing their infrastructure (unlike other states.)

I remember my very first seminar during Undergrad Politics being focused around the concept of domestic politics being the art of deciding who gets what, where and how. The individual picture in states like Denmark is clearly a lot more complex than what the OP had to say, but even if we take his statement at face value, it has a lot of problems. And I doubt it has much relevance to Microsoft misusing transfer pricing to save on taxes in Denmark.

Wonder why so many down votes? I don't think much of what the OP said can be refuted, as its pretty much what's happening right here and now.

Because it's quite a cynical view. Firstly, we could debate whether that really is "what's happening right here and now." And secondly, that it is utterly willed by politician, and that they are inherently corrupt.

Thirdly, because his statement denies all facts. Denmark isn't a dystopian society in a state of laissez-fare capitalism where the state is merely an apparatus of the elite to rule over the masses. From my impression of the country, it seems to be a functional democracy and an effective welfare-state, moreso then the whole lot of us. The Danish government seems to be very involved in developing their infrastructure (unlike other states.)

I live in Denmark, consider myself fairly leftist (hardened commie by US standards), and that original comment is so absurd I wonder if the upvoters understand it as comedy. That sort of aggressive, uninformed ranting is best left to punk metal outfits.

Wonder why so many down votes? I don't think much of what the OP said can be refuted, as its pretty much what's happening right here and now.

Because it's quite a cynical view. Firstly, we could debate whether that really is "what's happening right here and now." And secondly, that it is utterly willed by politician, and that they are inherently corrupt.

Thirdly, because his statement denies all facts. Denmark isn't a dystopian society in a state of laissez-fare capitalism where the state is merely an apparatus of the elite to rule over the masses. From my impression of the country, it seems to be a functional democracy and an effective welfare-state, moreso then the whole lot of us. The Danish government seems to be very involved in developing their infrastructure (unlike other states.)

That was true, once. They've been going somewhat downhill of late. Not necessarily through any fault of their own; the knock on economic effects of the EU financial crisis have hit Denmark just like everyone else. They have tithed the proletariat as far as they can - though it is true that the Danish will accept far fewer inequities than most other societies before they initiate change - and Danish politicians face the exact same problem as politicians everywhere else: how to keep the money flowing to those who bought their position for them.

Is my view cynical? Yes. Is it incorrect, I beg to differ. We collectively want to believe that we are not living in a dystopia. We want to believe that Denmark (and Norway, Finland, Sweden, etc) are bastions of rationality, democracy and the land of the good and true. We need to believe this because it comforts us to think that somewhere - way out there - the ideologies we were raised on still exist. Corruption is minor-to-nonexistant and "the people" have control of their government. Were we to be forced to face our own lack of control over our nation, our society and even our very lives we risk slipping to an solopsistic and existential funk; one from which few people have the individual strength of character (or dull, naive ignorance) to emerge unscathed.

If you honestly believe that Denmark doesn't have some very serious problems with its social safety net, that its wealth gap isn't every bit as disgusting as elsewhere and that the most vulnerable members of its society aren't being left behind then you are a fool. Take some time to talk to individuals who live in that country and are reliant on government disability funding for mere survival. Ask them what programs exist to help them not merely eek out the most basic living, but train up and contribute to society. Ask them what life is like for them, how humiliated they are that there is little-to-no help for them to find a niche they can start to give back from and ask them how their quality of living has declined over the past 10 years or so.

I made my comment with a complete understanding of the political, social and economic scene in Denmark. One of my very good friends lives there and serves as a personal witness to exactly how "left behind" a great many Danes have become. Denmark isn't a utopia. It isn't the shining beacon of "democracy done right" that we so desperately need it to be. They are merely slightly less screwed than the rest of us; but they are well on their way and there is no indication whatsoever that their trajectory will be any different than the US, UK, Canada, Greece, Italy or any of the others.

Call me cynical and downvote me if you need to. I believe that the original comment had merit. I was not saying "capitalism as has been implemented thus far (and as we were all promised it would work when growing up) is kind of nor working out so well." I presume that readers of Ars are intelligent enough to know this simply as a matter of course.

My comment was simply "this move by the Danish government is merely a finger in the dyke. It does not address the larger issues at play and in fact may cause knock-on effects that are at least as bad." We need to address the fundamental wealth distribution imbalance (or at least the social requirement to keep funneling it towards those that prop up our politicians) if we really want to start fixing our economies. The issue isn't some corporation, group of corporation or even group of individuals finding tax dodges. The issue is how we redistribute government funds in the first place...and why.

I'm a good pinko-commie-liberal-socialist scumbag and I believe in things like public education, public heath care and so forth. I even believe in regulating or nationalizing "natural monopoly" utilities, though i know that gets the irish up of a certain segment of the population. Despite this, I also believe the fundamental issue facing democratic governments the world over is the size of those governments. Governments have their fingers in too many pies; while there are usually good reasons behind this, the net result is that government has become not an apparatus for solving issues but rather an apparatus for redistributing wealth.

Again; I'm not inherently opposed to the redistribution of wealth, so long as that redistribution serves the people. Currently, it doesn't. It is simply one fiasco after another. We commission study after study after study on how to do things properly and then rewrite or ignore them in order to meet the needs of the politician in funneling money to their supporters.

Pulling a billion dollars out of Microsoft isn't going to help the Danish government. I'd argue that it will do a heck of a lot more harm than good. You don't want to spook large enterprises or investors that are already twitchy about where they put their money. I'm all for closing loopholes, but under no circumstances go after people or companies retroactively.

If you want to start making a dent in the Danish economy - and this really could apply to any government - don't keep trying to find new sources of money to prop up the existing broken system. Invest your time, effort and money into reforming the existing system to minimise corruption, eliminate or outright outlaw lobbying, install massive amounts of government transparency, create a system of checks and balances to ensure that taxpayers get maximum value for dollar from any government contractors and outlaw backhanders, corporate political donations or giving cushy jobs to politicians or top-tier civil servants after they leave office. Paying for these people to have a decent pension would ultimately be a far lower cost to our economy than pissing away hundreds of billions of dollars on single-supplier contracts and other governmental shenanigans.

What Denmark is doing here will have long term repercussions for them as investors and companies start to look at that country in exactly the way I described in my original post: that the government has ceased trying to feed the political money machine with the dollars of the hoi polloi and has decided to go after the reserves of those who haven't curried political favour.

They will not respond to this by currying more political favour in an attempt to be on the governments good side. They'll respond by de-assing and going elsewhere. You want to downvote me for that, go right ahead.

At the end of the day companies like Microsoft are not doing anything illegal by doing this and are working within the confines of the law as set down by these governments. Also us UK citizens weren't complaining when they were using similar loopholes to buy items via the Channel Islands to avoid paying VAT on purchases so its not a case of tax dodging being something exclusive to large multinationals.

In response to Astlor (that was a very long post and quoting it will just make this thread hard to read).

I don't know much about Denmark, but a few general thoughts. This has nothing to do with applying new laws retrospectively, it's about misuse of transfer pricing using laws and regulations which are already 'on the books'. Neither is it fundamentally about redistribution of wealth, it's a taxation issue, The case of an individual failing to pay his/her due tax would not invoke this kind of context. Neither is about expansion of government, no goverment, no matter how reductionist, would accept this kind of financial affair to be exempt from it's overview and taxation.

I very very much doubt that your central thesis, that Denmark has decided to extract money from multi-nationals that haven't paid their (backhanded) dues to prop up their internal patronage system makes much sense. These kind of situations have always occured every now and again since multi-nationals and free movement of capital moved to the forefront of modern capitalism. The current financial crises probably has increased the motivation to clamp down on mis-behavior amongst multi-nationals, but how on earth does that bolster your theory that this is directly linked to internal patronage?

There are a number of economic and political theories to help understand the relationship between states and non-state actors. There are a number of ways to help us understand the relationship between state institutions, elites and the people. The key is that they all have clear, reasoned links between observation, theory and predictions. I just don't see your links, at all.

At the end of the day companies like Microsoft are not doing anything illegal by doing this and are working within the confines of the law as set down by these governments. Also us UK citizens weren't complaining when they were using similar loopholes to buy items via the Channel Islands to avoid paying VAT on purchases so its not a case of tax dodging being something exclusive to large multinationals.

Wait, what?

A) I really don't think Microsoft were using the same kind of loophole as the VAT dodge from the Channel Islands. It's not even a similar... anything really. One was a simple oversight in VAT regulation which has been fixed. The other stems from the ability of multi-nationals to shift profits, costs and operations in different tax juristrictions, which in some cases is legal and others illegal.

B) It is not a case of exploiting a clear loophole, it's a taxation dispute under existing laws and regulations. If Microsoft 'were not doing anything illegal' then this situation would not exist. Clearly the government of Denmark does not agree with you.

I am not advocating the practice - but who can blame the for trying? In fact most boards and/or investors would probably fire management if they DIDN'T try to get away with this ...

I remember reading on Tvtropes once that companies are legally required to maximize their profits (if true it makes a certain amount of sense) which means that they have to down value this as much as possible

Wouldn't profits be further maximized if the pay increases OFTEN given to management were changed to match the kind of 'increases' given to labor? In the years when I actually got 2%, I doubt management did that poorly...

From what I understand the US has a distorted view of what is reasonable pay for management

In response to Astlor (that was a very long post and quoting it will just make this thread hard to read).

I don't know much about Denmark, but a few general thoughts. This has nothing to do with applying new laws retrospectively, it's about misuse of transfer pricing using laws and regulations which are already 'on the books'. Neither is it fundamentally about redistribution of wealth, it's a taxation issue, The case of an individual failing to pay his/her due tax would not invoke this kind of context. Neither is about expansion of government, no goverment, no matter how reductionist, would accept this kind of financial affair to be exempt from it's overview and taxation.

I very very much doubt that your central thesis, that Denmark has decided to extract money from multi-nationals that haven't paid their (backhanded) dues to prop up their internal patronage system makes much sense. These kind of situations have always occured every now and again since multi-nationals and free movement of capital moved to the forefront of modern capitalism. The current financial crises probably has increased the motivation to clamp down on mis-behavior amongst multi-nationals, but how on earth does that bolster your theory that this is directly linked to internal patronage?

There are a number of economic and political theories to help understand the relationship between states and non-state actors. There are a number of ways to help us understand the relationship between state institutions, elites and the people. The key is that they all have clear, reasoned links between observation, theory and predictions. I just don't see your links, at all.

My understanding of the situation - and feel free to correct me if I am wrong - is that Microsoft has not in fact done a single thing wrong. They have taken advantage of existing laws, nothing more. You could argue the moral or ethical wrongness of the actions, but legally they would seem to be on firm ground.

Going after Microsoft for that billion then is going to require making up some new rules (which frankly should be in place anyways) and then applying them retroactively. (Or applying newly extant regulations to periods before they were in force.) Neither is good at all; while I don't disagree that companies should be prevented from moving capital around in such fashions, companies need stable rulesets that won't be changed retroactively. Once you're through the needle, you're through.

Regarding the patronage issue - and actually, if you pay enough attention to Denmark, a lot of the wastage is external patronage; money pissed away on other multinationals via local subsidiaries more than anything else - I think the link is pretty clear. Existing budgetary requirements are not being met; 2013 will see a defect instead of the much hoped-for (and political critical) surplus. Do not underestimate how important this to local Danish politics; the deficit (and that fact that it has once more grown from projected amounts) is a big issue.

Solving the issue can be done in one of three ways: 1) Distract the voters. This is unlikely because Danes are a savvy bunch and pretty plugged in to their political system.2) Start cutting the fat and solving the inefficiency issues. There have been noises to this effect, but nothing substantive and no indications that anything substantive will ever materialize.3) Find new sources of revenue.

A lot of public projects have already been put on hold or scaled back in the past few years. Interest rates are at an all time low in order to suppress the crown versus the Euro (to encourage foreign investment.) Consumers are not consuming and corporations are slow to start ramping up hiring and R&D. In short, Denmark is slow to recover from the recession that has affected all of us and yet making now moves to stem the inefficient flow of capital out of the country via single-source contracts and other bits of patronage largely to foreign multinationals.

Going after another group - Microsoft in this case, though I am positive they won't be the last - in order to help make a dent in the shortfall is nothing more than fishing around behind the couch cushions for spare change. Worse, it's a dangerous bit of fishing; if Microsoft is indeed entirely within their legal rights (again, please correct me if I am wrong here) to do what they have done, then this move is nothing more than robbing from peter to pay paul. Anyone who stands to be "peter" won't like that overmuch.

Remember that Denmark's primary economic wealth is its human capital. It requires some very liberalized trade policies to survive. They currently have a trade surplus, but this is at risk due to the same retirement issues that are affecting us all. There's a double whammy in that the labour market in the rest of the EU is getting to the point that lots of skilled labour is available at rock-bottom prices.

Playing backsies with multinationals and taxes in this manner is not going to go down well. The exiting politicos are more than experienced enough to know this. So the question becomes "why take the risk." Keeping the extant patronage system going without bleeding political capital to an unbalanced budget would seem to be the only answer.

Edit: I should point out that I under no circumstances want to be correct about the above. Please prove me wrong. I would really like to think that the madness is largely confined to my own continent and that Denmark - along with a few other Nordic countries - really are the paradises we so often pain them to be.

My understanding of the situation - and feel free to correct me if I am wrong - is that Microsoft has not in fact done a single thing wrong. They have taken advantage of existing laws, nothing more. You could argue the moral or ethical wrongness of the actions, but legally they would seem to be on firm ground.

You're wrong.

It's simply a matter of whether or not Microsoft Ireland paid Microsoft Denmark the correct amount of money, for which the taxes of Microsoft Denmark is based on.

Again, replying to Astlor but not quoting his/her reply for readability.

I've said this several times now, Denmark does not appear to be invoking any new laws or regulations, echoing what Hinton said above, this is not new, it's an issue that periodically rears its head ever since multi-nationals and the free movement of capital become a defining feature of our international system.

Linking this to an internal or external patronage system, beyond normal political workings, still makes no sense to me, whatsoever, despite your lengthy reply.

It's simply a matter of whether or not Microsoft Ireland paid Microsoft Denmark the correct amount of money, for which the taxes of Microsoft Denmark is based on.

The taxation of profits isn't something new or novel.

You, along with others, are over thinking what is going on here.

I don't disagree that the taxation of profits is mundane. That said, if the events were above board - which they seem to be, having taken advantage of perfectly legitimate loopholes in the law - then seeking the money anyways is novel.

This article has nothing to do with the many previous articles talking about Apple/Google/Facebook/etc avoiding taxes on profits by using overseas subsidiaries. The issue in this scenario is valuation and capital gains. When dealing with internal transactions where you decide the prices/rates/payment terms, you are supposed to use realistic market valuations.

Here's an easy example. Say you run a corporation and take a loan from your company. You cannot simply decide no interest and vague repayment terms. If you get audited, the IRS flag you as trying to hide income and hit you with back-taxes plus penalties. Loans must have realistic market rates & repayment schedules.

It's the same concept here. Microsoft Ireland arbitrarily decides that the assets of Microsoft Denmark was worth $1 (or whatever the amount was) and purchases it for that price. Microsoft Denmark then claims they earned zero capital gains from the sale of their assets and avoids taxes. If $1 is not the market value, then this is just as fraudulent as hiding income as loans -- not legal, not above the board.

The part where MS now pays a lower annual tax bill to Ireland (and nothing to Denmark) is not being questioned.

2) An Advance (not "Advanced" despite the grammar-pain it causes) Pricing Agreement, or APA, is a one-time deal. To say that "Google got its approval in 2006" is an imprecise statement. Google, while it may have finalized an APA in 2006, probably has several APAs and it wouldn't surprise me to find out it has both unilateral APAs (agreements reached with just the U.S. IRS) and bilateral or even multilateral APAs (agreements that are blessed by the U.S. IRS and another, or multiple other, tax authorities). APAs are an area the IRS is actively trying to improve in terms of efficiency. They are voluntary on the part of the taxpayer and only serve to help the taxpayer avoid a "transfer pricing adjustment." TP adjustments are nasty stuff and often make headlines (well, tax headlines anyway). Remember that $2 billion Cisco tax problem a few years back? That was a transfer pricing adjustment. Which brings me to my last point.

3) APAs are NOT evil. A lot of governments around the world are taking a hard look at transfer pricing policies. A lot that have been very quiet over the last couple of decades have jolted awake rather than slowly coming to life. The U.K., Denmark, India, and a host of other countries have made large transfer pricing adjustments the norm. Their proactive, even aggressive, handling of transfer pricing cases is changing the TP landscape and altering the list of tax-friendly countries where multinational companies want to set up shop. In the ever-changing and uncertain area of transfer pricing, it behooves every Tax Director and CFO to make sure they are taking full advantage of cementing their tax positions in place as much as they can. APAs allow for just that.

Danish tax seems to be going after the amount and not a penalty applied.

I'm not Danish but I just moved from there. It really is a very nice place. They have social problems and mostly because of immigration. They are tackling them aggressively.

The main problem I see with the Danish system is that it actually runs a bigger deficit than what is shown in the numbers. Denmark is an oil exporter but its supply is dwindling fast. The Danish state is spending that money as it comes in, unlike Norway which saves the money in the biggest investment fund in the world. On the other hand the Danish public has a lot of private savings so I can foresee a change in the system with a smaller public sector and a wealthy middle class.

The education system is really very good and I can see it bearing fruit all the time. The average university student gets grants from the state and lives at home and goes to a decent free public university. Its cheap and efficient and they focus on export and entrepreneurship. Danes really don't want to emigrate so that education and focus stays at home.

That said, if the events were above board - which they seem to be, having taken advantage of perfectly legitimate loopholes in the law - then seeking the money anyways is novel.

The main problem here is that "perfect loophole" is based in getting goods under priced and selling it to an offshore shell company, so that shell company can later license it to the original company who sold the goods.

That scheme is quite close to concealment of assets - without any title 11 involved, but concealing for tax evasion purposes - and it is prosecuted everywhere as it's used to illegally transfer funds out of countries without paying taxes.

Instead of paying the taxes for the goods, you sell them to an overseas company for 1 penny and pay the taxes for that. It have been done for years, and it have been prosecuted for years, nothing new here.

Why Microsoft / Google / Apple / [insert any multinational here] can get away with this most of the time ?

Because the goods they usually sell are not produced or created in the countries but imported so there is no taxable funds transfers out of the countries. They can just license their IP and pay a margin close to the operational cost of the multinational branch in that country and everything will be legal.

In this case Denmark knows the price of the goods as they have been produced there and bought by Microsoft, and Microsoft devalued the goods to sell them overseas and evade taxes. That amounts to the transfer of the difference of the price paid in Denmark and the price paid in Ireland out of Denmark without paying taxes.

This just in: fucking people on a deal, tends to make them avoid dealing with you!

If you don't want them coming here (Ireland) to avoid taxes,maybe you should consider not ripping them off back home.

I'm no fan of corporations running amok, but seriously, whatever tax you add to a product producer, will simply be passed on to the price of the product and therefor the consumer. This practice is so easy to plausibly deny, any tax on a corporation is effectively just another tax on the public.

Considering some of the pet-projects that governments piss away your money on; hundreds of billions on decade-long excursions to kill some Arabs on their home turf, billions on failing miserably at stopping stoners from getting stoned, billions on failing to making a new GPS network from scratch in the name of pride/arrogance... it's a wonder that everyone doesn't yet see them for the glorified protection rackets that they are.

A 10% income tax with no VAT, could cover everything a country needs,it just can't cover the pet-projects and lavish salaries that politicians want.

My understanding of the situation - and feel free to correct me if I am wrong - is that Microsoft has not in fact done a single thing wrong. They have taken advantage of existing laws, nothing more. You could argue the moral or ethical wrongness of the actions, but legally they would seem to be on firm ground.

Microsoft has indeed done something wrong. All European nations have something called a gift tax. If any legal entitiy is gifting something of high value, above a threshold of around €20,000, a tax has to be paid. By legal definition, a gift is any property transfered below 50% market value. The gift tax can only be avoided by gifting to tax-exempt non-profit organisations.

This legal hook is IMHO a good way to force multi-nationals employing dutch sandwiches and double irish to pay some taxes.

Thirdly, because his statement denies all facts. Denmark isn't a dystopian society in a state of laissez-fare capitalism where the state is merely an apparatus of the elite to rule over the masses. From my impression of the country, it seems to be a functional democracy and an effective welfare-state, moreso then the whole lot of us. The Danish government seems to be very involved in developing their infrastructure (unlike other states.)

That was true, once. They've been going somewhat downhill of late. Not necessarily through any fault of their own; the knock on economic effects of the EU financial crisis have hit Denmark just like everyone else. They have tithed the proletariat as far as they can - though it is true that the Danish will accept far fewer inequities than most other societies before they initiate change - and Danish politicians face the exact same problem as politicians everywhere else: how to keep the money flowing to those who bought their position for them.

Is my view cynical? Yes. Is it incorrect, I beg to differ. We collectively want to believe that we are not living in a dystopia. We want to believe that Denmark (and Norway, Finland, Sweden, etc) are bastions of rationality, democracy and the land of the good and true. We need to believe this because it comforts us to think that somewhere - way out there - the ideologies we were raised on still exist. Corruption is minor-to-nonexistant and "the people" have control of their government. Were we to be forced to face our own lack of control over our nation, our society and even our very lives we risk slipping to an solopsistic and existential funk; one from which few people have the individual strength of character (or dull, naive ignorance) to emerge unscathed.

If you honestly believe that Denmark doesn't have some very serious problems with its social safety net, that its wealth gap isn't every bit as disgusting as elsewhere and that the most vulnerable members of its society aren't being left behind then you are a fool. Take some time to talk to individuals who live in that country and are reliant on government disability funding for mere survival. Ask them what programs exist to help them not merely eek out the most basic living, but train up and contribute to society. Ask them what life is like for them, how humiliated they are that there is little-to-no help for them to find a niche they can start to give back from and ask them how their quality of living has declined over the past 10 years or so.

I made my comment with a complete understanding of the political, social and economic scene in Denmark. One of my very good friends lives there and serves as a personal witness to exactly how "left behind" a great many Danes have become. Denmark isn't a utopia. It isn't the shining beacon of "democracy done right" that we so desperately need it to be. They are merely slightly less screwed than the rest of us; but they are well on their way and there is no indication whatsoever that their trajectory will be any different than the US, UK, Canada, Greece, Italy or any of the others.

Call me cynical and downvote me if you need to. I believe that the original comment had merit. I was not saying "capitalism as has been implemented thus far (and as we were all promised it would work when growing up) is kind of nor working out so well." I presume that readers of Ars are intelligent enough to know this simply as a matter of course.

My comment was simply "this move by the Danish government is merely a finger in the dyke. It does not address the larger issues at play and in fact may cause knock-on effects that are at least as bad." We need to address the fundamental wealth distribution imbalance (or at least the social requirement to keep funneling it towards those that prop up our politicians) if we really want to start fixing our economies. The issue isn't some corporation, group of corporation or even group of individuals finding tax dodges. The issue is how we redistribute government funds in the first place...and why.

I'm a good pinko-commie-liberal-socialist scumbag and I believe in things like public education, public heath care and so forth. I even believe in regulating or nationalizing "natural monopoly" utilities, though i know that gets the irish up of a certain segment of the population. Despite this, I also believe the fundamental issue facing democratic governments the world over is the size of those governments. Governments have their fingers in too many pies; while there are usually good reasons behind this, the net result is that government has become not an apparatus for solving issues but rather an apparatus for redistributing wealth.

Again; I'm not inherently opposed to the redistribution of wealth, so long as that redistribution serves the people. Currently, it doesn't. It is simply one fiasco after another. We commission study after study after study on how to do things properly and then rewrite or ignore them in order to meet the needs of the politician in funneling money to their supporters.

Pulling a billion dollars out of Microsoft isn't going to help the Danish government. I'd argue that it will do a heck of a lot more harm than good. You don't want to spook large enterprises or investors that are already twitchy about where they put their money. I'm all for closing loopholes, but under no circumstances go after people or companies retroactively.

If you want to start making a dent in the Danish economy - and this really could apply to any government - don't keep trying to find new sources of money to prop up the existing broken system. Invest your time, effort and money into reforming the existing system to minimise corruption, eliminate or outright outlaw lobbying, install massive amounts of government transparency, create a system of checks and balances to ensure that taxpayers get maximum value for dollar from any government contractors and outlaw backhanders, corporate political donations or giving cushy jobs to politicians or top-tier civil servants after they leave office. Paying for these people to have a decent pension would ultimately be a far lower cost to our economy than pissing away hundreds of billions of dollars on single-supplier contracts and other governmental shenanigans.

What Denmark is doing here will have long term repercussions for them as investors and companies start to look at that country in exactly the way I described in my original post: that the government has ceased trying to feed the political money machine with the dollars of the hoi polloi and has decided to go after the reserves of those who haven't curried political favour.

They will not respond to this by currying more political favour in an attempt to be on the governments good side. They'll respond by de-assing and going elsewhere. You want to downvote me for that, go right ahead.

Let's talk about this again in 15 years, shall we?

How weird it is to read such a critical review of the future prospect of one owns goverment/country - and then find yourself agreeing completely.. It's absolutely correct, although I'm proud of the society we've built, there's no denying the increase in corruptness, visible through the gobsmacking descisions being made by the socalled left-wing parties currently representing the people. Inequality is rising and for example there's a public school reform being pushed - shoved, may be a better word - through even though the latest research completely opposes the direction being put forward (more hours in school for the children to increase learning), worth noting is also the fact that NOONE from the relevant organisations (such as teachers) were involved in the shaping of the reform. Furthermore we're cutting into the public student support as well as downgrading the general welfare, all in order to decrease tax pressure on the corporations, even though all economic experts claim this will not create jobs but only increase profits for the shareholders (and of course boulster companies for the time ahead, but that shouldn't really be a focus right now as much as increasing demand in the danish society - from a capialistic view of things). Then there's the big railroad upgrade, to put in electric trains (sounds good), but the funding comes from a renegotiation of the deals with oil companies outside the socalled DUC (Danish Underground Consortium) - which keeps its current deal. The funny thing is, our partly-state-owned energy-company DONG (yes that is the name of the company ;-)) - which is currently under economic pressure and looking for investors - is one of the companies outside of the DUC, which will account for about half of the money going into the railroad upgrade... Is it me or isn't that a bit messed up?

I could continue with other laws being put forward, such as the socalled goverment-openness-law (which alters the areas in which journalist have the right to claim insight to proceedings), that leaves it to the individual minister to decide what areas of his work should be open to claims.. I mean.. come on..Danish society and the previous positive feeling of democracy within it is clearly in downfall..

But all that doesn't change the fact that I feel Microsoft should pay up! ;-)